As your business changes, insurance companies want to make sure you are paying the correct amount based on your exposures. It’s not meant to be scary or to catch you doing something. When you first bought your policy your premium was estimated based on your best estimated sales and/or payroll figures. We understand how much can change in a year. That’s why we want to check in with your business insurance yearly to make sure your numbers are accurate. The check in process is called a premium audit. The insurance company is confirming the estimated sales and/or payroll, to the actual numbers. The audit process guarantees that your premium reflects your individual business operation and you never pay more or less than required
Prepare Your Financial Documents
Your auditor will want to review your payroll and disbursement journals, general ledger and cash receipt journal. They’ll also look over some federal tax records/forms. Having these ready will help the premium audit process go smoothly and quickly.
Double Check Payroll
When you fill out your payroll audit questionnaire for your premium audit, you’ll need to be as specific and accurate as possible. Make sure to include holidays, vacation, sick time wages and any housing allowances when providing payroll. You can exclude tips if you record them separately from regular wages.
Employee payroll is assigned to the basic classification that best describes the business. The business is classified rather than each employee or duty. You can split the payroll of an employee between classifications, if the classification can be applied to your business. If that’s the case, your records should reflect actual time spent working within each classification and an average hourly wage that is comparable with the industry.
Remember that any payroll breakdown needs to show actual dollar figures per employee/per classification. Figures based on percentages of time spent in each duty are not allowed and some classifications cannot be split.
Have Your Gross Receipts Ready
Gross receipts may be required, so it is best to have them ready to share during your premium audit. You’ll want to make sure they’re broken down by location. It’s also a good idea to have verification documents like profit/loss statements or sales tax returns as well.
Get Contracts and Invoices from Contractors
If you used subcontractors or independent contractors, your auditor will want to see copies of the contracts and invoices. Make sure any invoices show the breakdown of labor and materials. Keep the certificate of insurance on file as well. If you do not have the certificate of insurance, they will be considered employees which would cause a premium to be charged for them on your policy.
Complete Your Premium Audit within the Timeframe
You will have 60 days to complete the audit process. If you don’t complete the premium audit within the requested timeframe, it will be recorded as an incomplete audit. Unfortunately, that could result in a premium increase or nonrenewal of your policy.
Having everything ready for your premium audit will help lead to a painless process when evaluating your business insurance. Do you want help preparing for an upcoming audit? Our Premium Audit Team is available to answer your audit-related questions. You can give them a call Monday through Friday 8:00 am to 4:30 pm CT at 1-800-526-7270 or email them at FBLCentralAuditing@FBFS.com.